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Tierney v. Javaid

California Court of Appeals, First District, Third Division

May 31, 2018

JOSEPH TIERNEY et al., Plaintiffs and Appellants,
v.
NASIR JAVAID et al., Defendants and Respondents.

         CERTIFIED FOR PARTIAL PUBLICATION[*]

          City and County of San Francisco Superior Court No. CGC-13-531997 Honorable Suzanne R. Bolanos Trial Judge

          Counsel for Plaintiffs and Appellants: Myron Moskovitz, James A. Ardaiz, Kathy DeSantis, Paul Katz, Moskovitz Appellate Team.

          Counsel for Defendants and Respondents: Mark Poe, Randolph Gaw, Gaw, Poe, LLP. Lucia MacDonald, Mode Law.

          Siggins, J.

         This case arises out of a failed real estate purchase by appellant Joseph Tierney from respondents, husband and wife, Nasir Javaid and Dejauna Joseph, the owners of the real property at 376 Castro Street in San Francisco (Property). Tierney contracted with Nasir and Dejauna in 2004 to purchase the Property, where the couple ran a gas station, so he could build a condominium project. As a condition of closing the deal, however, he had to first obtain the necessary “Entitlements” for development from the City and County of San Francisco (City).

         The entitlement process was complicated and involved. It ended up taking Tierney eight years-until 2012-to secure the conditional use permit authorizing him to demolish the gas station and construct the residential units. At that point, however, Nasir refused to sell, asserting their deal had expired and Tierney had failed to perform on time.

         In 2014, Tierney and 376 Castro Street, LLC (collectively Tierney) sued Nasir, Dejauna, and their business Naz Auto Services (collectively the Naz Parties). Two causes of action were tried to the jury-breach of contract (specific performance) to compel sale of the Property and quantum meruit for Tierney to recover costs for work performed at a separate gas station Nasir owned in Mountain View.

         On the breach of contact claim, the trial court found the jury hopelessly deadlocked and declared a mistrial. At Tierney's request, the court decided that claim in a statement of decision. It found Tierney failed to perform his contractual obligations and was not entitled to specific performance. But the jury reached a verdict in Tierney's favor on the quantum meruit claim, awarding him $156, 000 as the reasonable cost of work he did at Nasir's Mountain View gas station. The court vacated this verdict because Tierney had not produced a certificate of licensure to show his compliance with Business and Professions Code section 7031. The trial court thus entered judgment in favor of the Naz Parties and awarded them attorneys' fees, costs, and other expenses.

         We affirm in part and reverse in part. In the published portion of this opinion, we conclude Tierney's election to have the trial court decide his specific performance claim waived any claims of error he had based on the jury trial proceedings leading up to and including the mistrial declaration. We also conclude there was substantial evidence to support the trial court's finding that Tierney failed to perform his part of the contract by not timely paying the purchase price after securing the Entitlements, and thus, he was properly denied specific performance. However, we reverse the trial court's order granting judgment notwithstanding the verdict on Tierney's quantum meruit claim. We also conclude the court erred in awarding the Naz Parties $96, 233.12 to in non-statutory costs. In all other respects, we affirm the attorneys' fees and costs award.

         FACTUAL AND PROCEDURAL BACKGROUND

         The Parties and the Property

         In 2004, Nasir and Dejauna bought the Property and gas station for $2.75 million. The following year, Tierney, a general contractor and real estate developer who wanted to build condominiums on the site, offered to purchase the Property.

         The Purchase and Sale Agreement

         The parties executed a non-binding letter of intent summarizing the terms and conditions for Tierney's purchase. Their deal was memorialized in a purchase and sale agreement dated August 20, 2004 (“PSA”).

         The PSA required the purchase price of $3, 434, 000 be paid to Nasir and Dejauna in two stages. In the “First Closing, ” Tierney had to pay 10% of the price, or $340, 000, by August 23, 2004, for a 10% ownership of the Property as a tenant in common. In the “Second Closing, ” Tierney had to pay the $3, 094, 000 balance of the purchase price, to obtain 100% ownership.

         Section 5(a) of the PSA set forth two conditions precedent to the second closing. First, Nasir and Dejauna had to satisfy the “ARCO Condition, ” which required them to secure a quitclaim deed from the Atlantic Richfield Company (ARCO), the gas station's historic supplier, to release any interest ARCO potentially had in the Property. Second, Tierney had to obtain “all permits, approvals and other entitlements required by the [City] with respect to the construction and development of at least [22] residential units, ” which the PSA defined as the “Entitlements.” The Entitlements did not include “ministerial building permits.”

         If either condition was unfulfilled by August 31, 2005-defined in the PSA as “the Entitlement Deadline”-Tierney could reclaim his initial $340, 000 payment (minus $50, 000) upon relinquishing his 10% interest in the Property. Alternatively, Tierney could “retain [his] 10% tenancy in common interest in the Property without proceeding to the Second Closing, ” and Nasir and Dejauna would keep the initial $340, 000 payment.

         Section 5(b) of the PSA obligated Tierney to “proceed in good faith to attempt to obtain the Entitlements” but did not obligate him “to pay extraordinary application fees or accept any particular restriction on the proposed project.” This subsection also made Tierney responsible for clearing the ARCO Condition to the extent Nasir and Dejauna wanted him to help.

         If the second closing conditions were fulfilled, Section 8(d)[1] of the PSA required Tierney to pay off the balance of the purchase price-$3, 094, 000-“on or before the date (30) days after both (i) [Tierney] obtained the Entitlements, and (ii) the ARCO condition has been satisfied.... Time is of the essence of this deadline.” The second closing was “expressly subject to the satisfaction of the conditions set forth in Section 5.”

         The PSA reflected “the entire agreement between the parties” and could not “be modified in any manner except by an instrument in writing executed by the parties.”

         The Process to Secure Entitlements

         Tierney paid Nasir and Dejauna $340, 000 in August 2004 and satisfied the first closing. To secure the Entitlements, Tierney assembled a development team, which included a “permit expediter” to work as a liaison with the City to move the project through the entitlement process, a project designer, and a land use attorney. Tierney's land use attorney described the process for securing a conditional use permit (CUP) from the City as “extraordinarily difficult.” The length of a given project's entitlement process varies and cannot be predicted; the process can go anywhere from two years to 10 years. A significant portion of the time is taken up by the City's Planning Department's (Planning) review processes.

         The project's entitlement phase began in September 2004 when Tierney submitted an environmental review application to Planning. In August 2005, the project was assigned an environmental planner. In November 2005, Tierney filed the conditional use application for demolition of the gas station and construction of residential units on the Property.

         During the entitlement process, the project encountered several difficulties, including two separate lawsuits. In November 2005, Nasir and Dejauna filed a partition action against Tierney alleging Tierney breached the PSA because he had failed to obtain the Entitlements by August 31, 2005. Since Tierney was a 10% owner of the Property, Nasir and Dejauna asked the court to force a sale of the Property and split the proceeds. InDecember 2005, BP West Coast Products LLC (BP), ARCO's successor-in-interest, sued the Naz Parties and Tierney, seeking to rescind the PSA on the ground that the agreement had violated BP's right of first refusal. In June 2006, both lawsuits were resolved when the parties entered into a “Settlement Agreement, Release and Conditional Covenant Not to Sue” (Settlement Agreement). Nasir and Dejauna agreed to dismiss their partition action without prejudice. Tierney agreed to pay $150, 000, to resolve the BP lawsuit and satisfy the ARCO Condition in the PSA.

         In September 2006, the project faced another hurdle when Planning incorporated Tierney's project into a “charrette” process instituted by City Supervisor Bevan Dufty, who wanted all new projects in his district to be considered holistically. The charrette was a planning study for Supervisor Dufty's district so that the community's vision could be integrated into the area's development. The charrette took most of 2007 and extended into 2008. It involved multiple community workshops and culminated with the publication of the “Upper Market Development Design Guidelines” in October 2008. The design guidelines, which set forth the community's vision for the area, provided new and additional standards against which Planning would review any proposed project in the area.

         In addition, during the charrette, Supervisor Dufty directed Tierney's development team to look for a “community-based organization” as a tenant in response to community requests for “some sort of public benefit use” in buildings. The supervisor provided the team a list of contacts of community organizations for potential building occupants, including the San Francisco AIDS Foundation. By February 2009, Tierney had hired a commercial real estate broker to deal with the Foundation and see if they could occupy the proposed building. Ultimately, no deal was ever reached with the Foundation.

         In 2009, Tierney refocused his efforts on the residential plan. In the years that followed, the team worked on implementing the design guidelines from the charrette process, addressing Planning's comments related to the design and conducting neighborhood outreach. In November 2011, Planning published the project's preliminary negative declaration. In July 2012, Planning approved the project's final mitigated negative declaration, which concluded its environmental analysis.

         Nasir's Mountain View Gas Station

         In May 2012, Nasir and Tierney had further dealings over a shuttered gas station Nasir owned in Mountain View. Nasir needed money to refurbish the Mountain View station to make it fully operational, so he contacted Tierney about leasing the Castro Property. Tierney refused Nasir's request because he thought he would soon obtain the necessary permits and obtain the Entitlements for the project.

         However, to address Nasir's need for cash, Tierney offered Nasir $75, 000 to refurbish the Mountain View station provided it would be credited towards his purchase price owed on the Castro Property. On May 21, 2012, Nasir emailed Tierney stating that $75, 000 was not enough to reopen the Mountain View station. Nasir further wrote that “[t]he original agreement we had is no longer valid since there is no closing date.” He also proposed something new: “I can give you another year, but we would have to draft a new agreement with a closing date and if you are not able to close by that date, then you would have to agree to give up your 10% and lose your deposit.... I am offering this sale of the business to you for the last time.... Sorry, but I have to mitigate my damages and can not wait any longer for you to purchase my property.”

         To “keep the peace, ” Tierney went to the Mountain View station to assess what repairs were needed. During this time, Nasir showed Tierney a $30, 000 estimate from RC Construction for the bathroom renovation. Tierney said that Nasir “showed [him] the amount of work to be done[, ] gave me a set of plans and gave [him] some contracts he had with some people [and he] took it from there.” Tierney testified that he remodeled the interior, worked with contractors, and managed the whole project.

         In July 2012, during the course of Tierney's work in Mountain View, Tierney notified Nasir that he was paying one of the subcontractors and alerted Nasir that he needed to post a notice for an upcoming Planning hearing on the Property. Nasir responded, “Great, Thanks!!” Tierney testified that based on Nasir's response, he “would then be able to proceed and pay [Nasir] off for the rest of the money [he] owed him.”

         Tierney worked close to a year on the station and emailed Nasir in April 2013 to inform him the work at the station was complete.

         There was no written agreement for Tierney's work at the Mountain View station or for the exchanges agreed to by either party. At trial, Tierney testified that he believed whatever work he did on the Mountain View station would be credited to the balance he owed on the Castro Property. Nasir testified that their agreement was that Tierney was going to repair the bathroom for $25, 000, and he was “going to have a subcontractor plumber and electrician. That was it.” Nasir also testified that Tierney said he would do the work for free, which he found odd, but that he offered to pay. While Nasir stated he was clear to Tierney that the Mountain View work had nothing to do with the Castro Property, he also understood Tierney “just wanted to make sure that [he] was just still going to agree to have the 90 percent still on the market.”

         Nasir never paid Tierney for any of the work done at Mountain View but at trial said that he had “no problem compensating him... whatever Tierney can prove and show” if he ever was provided an invoice of actual amounts worked. Around the time Tierney filed this lawsuit, he sent Nasir an invoice for approximately $237, 475. Tierney said he spent approximately $90, 000 on out-of-pocket costs for contractors and equipment, and $99, 000 in labor costs, which he later reduced to $83, 000.

         CUP Approved

         On August 2, 2012, the Planning Commission (Planning Commission) held a CUP hearing for the project. The Planning Commission approved the CUP for the demolition of the gas station and the construction of a mixed-use building with 24-residential units. As a condition of approval, the Planning Commission directed Tierney to further work with Planning and neighborhood groups on the building design. The Planning Commission also required that the final approved plans for the building design be presented at a future meeting as “an informational item.”

         At the Planning Commission's June 6, 2013 meeting, the final building design was presented. At trial, Tierney's project designer stated that the purpose of this was to give more information to the Commission of items that had not yet been completed. Asked whether the project was approved at this hearing, he stated, “This was informational, so it was already approved, from my understanding.”

         Excluding his $340, 000 first closing payment to Nasir and Dejauna and the $150, 000 settlement payment to BP, Tierney testified he had spent $350, 000 to entitle the Property at the point of securing the CUP.

         Property Advertised for Sale, Followed by this Lawsuit

         Meanwhile, on June 6, 2013, Nasir received an appraisal of the Castro Property valuing it at $4.3 million. He then began to market the Property “so we could avoid this whole litigation, ” and set the price at $12 million. Tierney “couldn't believe” Nasir was advertising the Property for sale. Tierney's land use attorney testified that Tierney called him and said Nasir was “ignoring the contract and trying to sell the property to someone else, and [he] needed [Tierney's land use attorney] to do something about it.”

         On June 12, 2013, Tierney's land use attorney wrote Nasir and Dejauna a letter to alert them Tierney wished to close: “We hereby notify you that the Purchaser has received his entitlements for the 376 Castro Street project.... [T]he Purchaser hereby demands (1) that you close your business... and (2) that the balance of your interest in the Property (90% ownership) be transferred to Purchaser.” The letter directed Nasir and Dejauna to deposit a grant deed in escrow and further added, “We understand that you are attempting to market the Property to third parties. Please cease and desist from such efforts.” Tierney's attorney notified ...


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